Monthly Archives: December 2006

Employee Theft – Embezzlement of Funds

This past week a friend of mine that is a business owner asked me what responsibility the outside accountant had in relation to a bookkeeper’s theft.

What is the accountant’s responsibility? Depending on what level of accounting is being prepared by the accountant; be it a tax return, a compilation, a review or an audited set of financial statements, determines how an accountant’s responsibility is determined.

An audit is the highest level of responsibility the accountant has regarding a set of financial statements. Based on the AICPA requirements auditor is required to brainstorm prior to the audit, to determine where in the books and records of the client is there potential risk of fraud. After the brainstorming the auditors must test any area that is a potential fraud risk. To see more click here: AntiFraud and Corporate Responsibility Center.

Just because the accountant tests for fraud doesn’t mean that he or she will find it. In testing, the auditor is reviewing random transactions. The chances of testing and finding fraud is very difficult, there can be collusion or the test data did not happen to be the ones where fraud occurred.

An auditor’s report does not say that the financial statements are correct or perfect and has no errors. The auditor’s report states the financial statements “are presented fairly”. The CPA can not say every transaction has been handled correctly. To do that would mean that the auditors would have to review every transaction that the company had. The cost would be unbearable for a business.

As to the other type of financial statements there is even less responsibility to find fraud as the accountant is not testing transactions. However, if the accountant is suspicious that there is a problem, he or she must follow up and may not ignore the possibility just because it is not an audit engagement.

When looking at financial statements, comparing activity on a year to year and/or a year to budget based on dollars and percentages is important. Any large variances should be reviewed and discussed with management and the owners.

If one person controls all aspects of cash or any other valuable assets, procedures should be in place that requires other levels of management to review the work under the control of one person. Management must monitor the employee’s work, follow the procedures.

If there are internal controls with a separation of duties the only way fraud can occur is through collusion. When there is only one person in the bookkeeping department it is alot easier to commit fraud.

Therefore it is the resposibility of management or the owners to review the work of the bookkeepers and make certain to set up procedures to minimize the possibility of theft. This is especially true when there is a large amount of purchasing of material for cash.

Here is my friend’s case:

A part-time intrern was trying to reconcile the petty cash slips. When he found a variance, he went to the owner and not the bookkeeper. After speaking to his accountant and making copies of all the paperwork for this petty cash reconciliation the owner had the intern show the bookkeeper the discrepency the bookkeeper said she would take care of it. She changed a number to make the totals work; however, there was no backup to the change.

After seeing how the adjustment was made, the accountant reviewed the books and it was determined that she had embezzeled over $50,000 during the past few years.

Where does the responsibility lie?

Income Tax Payments Online


online taxes

As you may be aware, you can pay your income taxes by credit card (1); however, you are responsible for a 2.49% add on fee. You can pay by credit card by phone at (888) 729-1040 or on the web at for federal taxes or (800)-272-9829 or on the web at for federal, state or local property taxes.

There are 2 other ways in which to pay your taxes electronically. First is the Electronic Funds Withdrawal (EFW) (2) and the second is the Electronic Federal Tax Payment System (EFTPS) (3). These 2 ways have no fees as these are direct withdrawls from your bank accounts. To use the EFTPS you must register as an individual and/or a business separately with the IRS and wait for a pin number that can take about 2 weeks. The difference is that you can pay all federal personal and business taxes on line.

The EFW plan is set up when you e-file your tax return, you can authorize that the taxes are withdrawn from your checking or savings account. The EFW program is only available through your tax professional or tax software. The toll free number is (888) 353-4537 which can be called 24/7 for information regarding a payment or to cancel a scheduled payment (to cancel a payment you maust call by 8 p.m. 2 business days prior to the withdrawal date.

The EFTPS gives you more control as you set up the amounts for the following taxes:

Form 1040 – individual income tax return; (1), (2) (3)

Form 4868 – extension for individual income taxes;(1), (2) (3)

Form 1040-ES – estimated taxes for individuals (you can schedule up to 4 withdrawals on the due dates of the estimates, April 16, 2007 (April 17 2007 in Massachusetts and Maine), June 15 2007, September 17, 2007 and January 15, 2008; (1), (2) (3)

Form 1041 – income tax returns for estates and trusts;

Form 940 – unemployment taxes; (1), (2) (3)

Form 941 – quarterly employment taxes; (1), (2) (3)

Form 944 – employers annual federal tax return; (1), (2) (3)

Form 1120 – corporate income tax returns; (1) (3)

Form 1120S – “S” Corporation returns; (1) (3)

Form 1065 & 1065B – partnership & limited liability Companies returns (1) (3)

Form 7004 – extension for corporate returns; and, (1) (3)

Form 990-PF – income tax return for private foundations; (1) (3)

Most states have also added on-line payments to their system. You should check with your state’s department of revenue to set up their payment process. Links to all state’s department of revenue,,id=99021,00.html

Tax Deadlines

As we are counting down to December 31, 2006, the end of another tax year, it is time to see if there is anything that needs to be done in order to minimize your income taxes.

If you have a business and you want to set up a retirement plan certain plans must be set up before December 31, 2006. They include pension and profit sharing plans as well as profit sharing 401(k) plans. A SEP-IRA checlklist

If you don’t set up one of these plans you can set up and fund a Simplified Employee Pension SEP-IRA before the due date of your return (including extensions).

The SEP-IRA has different vesting requirements that a pension or profit sharing plan. The pension and profit sharing plan has several vesting schedules with the longest vesting schedule being 5 years from entering the plan (6 years from date of hire). The SEP-IRA has an immediate vesting, where your employee does not lose a share of the retirement contribution if he or she leaves after the plan is funded, usually 2 years.

The radio is constantly playing advertisements for donations of cars, boats and other items of value. Remember that only donations completed by December 31, 2006 will provide a deduction for 2006. Also, if the vehicle is sold by the not-for-profit organization your deduction is limited to the amount of the vehicle proceeds. If the vehicle is kept and used by the not-for-profit organization (not sold) then you can deduct the value of the car. The values can be obtaind from Kelly Blue Book (KBB), Edmunds, or National Automobile Dealers Association (NADA).

Buying equipment before December 31, 2006. It is only a good idea if you really need the equipment now or early next year and you know what specifically want to buy.
If you buy equipment to reduce taxes, it not only reduces the tax; however, it also reduces cash or puts you in debt for 100% of the cost.

An example, if you are in the 40% tax bracket and buy a piece of equipment with a cost of $10,000.00, you will save $4,000.00 in taxes or the equipment only cost $6,000.00 ($10,000.00-$4,000.00). However, if you didn’t buy the equipment you would have $6,000.00 in your pocket ($10,000.00-$4,000.00).

The only reason to ever buy equipment is if you need it.

Bunching of deductions, if you are planning to give charitable contributions in early 2007, paying them in 2006 reduces your income taxes by 1 year.